Federal Reserve Chief Speaks

President and Congress should respond to new Social Security warnings

January 23, 2007|The Morning Call

If President Bush doesn't bring up the need to fix Social Security and Medicare tonight, he should. Federal Reserve Chairman Ben Bernanke told the Senate Budget Committee last week that the time for action "is about 10 years ago." Unless Congress does something soon, Mr. Bernanke said that "if early and meaningful action is not taken, the U.S. economy could be seriously weakened." His warning was considerably stronger than those his predecessor, Alan Greenspan, occasionally issued.

Government spending on Social Security and Medicare consume 40 percent of government resources. Starting next year, the expense of these programs will grow dramatically as the first of 78 million baby boomers start to retire. Today the entitlement programs account for about 8.5 percent of the Gross Domestic Product. Unless something is done by 2030, Mr. Bernanke says, Social Security, Medicare and Medicaid will be 15 percent of GDP. That's a lot of money out of the national economy and it will necessitate either huge tax increases or severe spending cuts.

Contrary to the mantra chanted by candidate after candidate in last year's election campaign, Mr. Bernanke said politicians can't expect a growing economy to make the problem disappear. It's more likely that it will cause a vicious spiral of rising national debt, higher interest rates and shrinking resources for other federal needs.

Mr. Bernanke refused to offer a prescription to cure the illness. That job belongs to Congress, he said. Sen. Judd Gregg, R-N.H., the committee's ranking Republican, said Mr. Bernanke's warning was "right-on, and a clarion call that I hope folks will listen to."

This week, Sen. Kent Conrad, D-N.D., the committee chairman, said he and Sen. Gregg had agreed on the framework for a group to develop a plan to fix this crisis. Everything, he said, including raising taxes, will be examined. President Bush had proposed a similar approach in his State of the Union address last year, but no one could agree on the ground rules. As Mr. Bernanke noted, time for action has passed and waiting longer will require even stronger medicine.